TechTalk

Increasing profitability

The new system of revenue optimisation is adding a new dimension to the hotel business. Sanjeev Bhar analyses the benefits of integrating various management tools to identify best available rates for services through this system

The demand for hotel rooms in India has been seemingly high for some time and the industry is upbeat about its rise for the next decade or so.

But at the same time the industry needs to keep a check on the obstacles that hinder increased revenues. It is here that the role of revenue management, demand based pricing, property management system, reservation management system and even sales and catering come into play. A revenue optimisation system integrates all these systems to identify the best available rate for services provided by the hotel.

The scope

The scope of revenue-based applications in Indian hotels is broadening and optimising revenue is the new mantra. Grahame Tate, managing director (Asia Pacific) of Integrated Decisions and Systems International, says, "This system addresses not only profitability in room sales but for everything a hotel serves. Right pricing is the key issue."

For example, banquet rates could be based on per square metre of area available. "We should not be caring about the demand drivers but the value in terms of space available for sales. It is quite close on the heels of room-based systems where we tend to quote room rates, higher or lower than rack rates, depending on availability. This system also helps to look at ancillary revenue sources like MICE (Meeting, Incentives, Conventions and Exhibitions) and F&B sales," he says.

Where it helps

Hotels are dependent on various systems - the property management software can inform the front office, sales and marketing, conference/ banqueting, Web bookings, etc about the current status but not the maximum price hotels could quote. Hence it demands feeding up with additional source to inform it about the best available rate.

Rudy Oretti, general manager at The Leela Palace Kempinski in Bangalore is of the opinion that the revenue operating system used at the Leela Palaces & Resorts helps them to manage packaging, pricing, inventory, etc and also provides analytic decision solutions, which facilitates swift decision.

The revenue optimisation system provides hotels with daily reports on competitive rates from group distribution systems, brand websites, etc. It then uses this information with rates quotable for walk-ins thereby identifying optimal rate based on probability of booking to be used by hotel staff keeping profitability at a higher level. Andrew Quinlan, general manager of Hotel Shangri La New Delhi says, "Revenue optimisation is an essential process of allocating the right type of capacity to the right customer at the right time and at the right price. A key factor is to determine the most profitable mix of demand for the given capacity and for the given period. Accurate forecasting, which is an intrinsic part of revenue management, about the business not only help us yield more but also gives us an indication about the most appropriate manpower requirement for the various periods."

Revenue increase

The system of revenue optimisation aims at correct pricing. One needs to have various building blocks in order to increase revenue generation. These are:

• Transaction systems
• Market segmentation
• Effective rate structure
• Effective and realistic market positioning
• Online strategy
• Revenue management culture
• Strong demand existence
• Implementation of automated revenue management system.

Revenue optimisation aims at delivering measurable revenue increase and thus, augurs increased profit margin and enhance asset valuation. "It helps decide what system (for decision making) to take and when. The purpose is to allow the user to maximise profits on peak days and to put right strategies into place," says Oretti.

On the other hand, Quinlan says, "Although there are a few grey areas in its application (where it has still not reached the optimum), it still has a strong say over rooms, restaurants, events and spa in our hotel." Tate feels that strong demand existence is not a necessity for increasing revenue. He is of the opinion that barring a few, most Indian hotels are not following demand based pricing. Rooms are sold to those who have reservations as well as to those who don't. In the latter category, there are bound to be some corporate clients or a customary loyal guest, and hotels lose profitable clients out of sheer compulsion.

Tate says, "Customers need to be identified into categories to understand their importance - True Friends (with long life-term booking yielding high profitability); Barnacles (short lifetime, high profitability); Butterflies (long lifetime, low profitability); and Strangers (short life-term stay yielding low profitability)."